Has the Recent Stock Market Downturn Created New Opportunities?

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Has the Recent Stock Market Downturn Created New Opportunities?

At first, the recent crash of the Dow Jones Industrial Average seems very formidable. CNN declares the plunge of 1,175 points that occurred on Monday, February 5th of 2018 as the single worst point drop in history.

Optimistic Outlook

With that said, the news is not all bad. The point drop did cause a loss of 4.6% to the Stock Average, but this percentage pales in comparison to past disasters within the U.S. stock market.

Jeremy Glaser of Morningstar points out that at the start of the month the market price/fair value ratio stood at 1.10. This means that, on average, stocks were trading for 10% above their actual value.

Glaser notes that this is a considerably large premium to pay, particularly because the market price/fair value ratio reached its peak at 1.14. This high premium would suggest that the market was more than likely to see a downturn sometime in the near future.

These types of situations often create great opportunities. Despite the loss that many investors faced, there is always room for growth. The market is expected to correct itself rather quickly, which makes this an excellent time to purchase available stocks.


When the Time is Right

The market price/fair value ratio currently sits at 1.02. With a 2% premium still in place, Glaser suggests that no may not be the best time to act.

The lowest that stocks have ever been within the U.S. market was during November of 2008, when they reached a low of 46%. Although it is highly unlikely that the market will drop to depths such as these, the question remains as to if the market will drop any further to facilitate an opportunity for potential investors.


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